Pay squeeze puts the brakes on house prices

A squeeze on take-home pay is set to keep the housing market subdued despite a slight bounce in prices in October, according to the building society Nationwide.

Its latest figures yesterday showed a 0.6 per cent boost for average house prices across the country for the month, although they are still 0.9 per cent lower than a year ago.

Its chief economist Robert Gardner said real-terms wages were back at levels last seen eight years ago and warned the housing market was likely to "remain challenging" as people battled an uncertain economy.

He said: "Although the UK economy has been adding jobs in recent quarters, even in the midst of recession, conditions remain very difficult for households. Wage growth is still not keeping up with the cost of living...

"Regular pay is back at the levels prevailing in 2004 and unemployment is still well above normal levels. This helps to explain why housing market activity has remained subdued."

The picture is far brighter in London, with prices nearly double the £164,153 national average. Figures for the June-to-September quarter showed house price growth picking up 2.1 per cent in the third quarter, stretching the capital's lead on the rest of the country.